The formalized leverage market protecting from a contagion

The recent stock market rally is eerily echoing the performances of the past. The fact that the market has increased more than three folds in less than 3 years is something to be marvelled at. The reasons behind the increase can long be debated and talked about. Whether it was the falling interest rates, the stable currency or the fact that the market had stayed undervalued for so long. The final conclusion could be that it was a mix of all these factors coming together. 

The catch is that this is not the first time such a rally has been seen.

While the market reaches new highs, there is a sense of certainty and security that is seen in the market. The older players of the market feel that the crisis and market crashes of yesteryear have helped the system build guard rails for itself. With the help of National Clearing Company of Pakistan and Securities and Exchange Commission of Pakistan, there were many steps taken to protect from future catastrophes. One such measure was the establishment of the Margin Trading System (MTS).

In the wake of the 2005 stock market crisis, in house badla was seen as the major culprit for the crash taking place. So what exactly was in house badla and how did it wreak havoc? And more importantly, what was done to protect the market?